The euro moved in a tight range against the dollar and yen on Tuesday following steep falls Monday, but markets remained risk averse amid worries over Greece's ability to avoid a debt default.
The euro showed resilience overnight after hitting a fresh 10-year low of 103.89 yen, as US stocks staged a late rebound to close in positive territory following a report that China may come to the eurozone's aid.
But traders say the single currency will remain under pressure as concerns linger over the exposure of the banking sector to the European sovereign debt problem.
The euro fetched $1.3679 in Tokyo trade, little changed from $1.3680 in New York late Monday. The unit traded at 105.33 yen compared to 105.56 yen. The dollar was rangebound at 77.01 yen against 77.15 yen.
The euro got support in New York Monday from a Financial Times report that cash-rich China may come to the aid of the eurozone and buy Italian government bonds. Italy is seen as possibly the next eurozone domino to fall.
The news that China was “in discussions to purchase Italian debt has calmed the market; remember that China eased European tensions in the past by purchasing Spain’s debt back in January,” noted Emma Lawson at National Australia Bank.
Market participants are focused on what China will do “because it is the only one big country that can take such a risk and ease market concerns over the European debt problems,” Toshihiko Sakai, a senior dealer at Mitsubishi UFJ Trust and Banking, told Dow Jones Newswires.
Germany's Der Spiegel reported on Monday that German finance ministry officials were considering a possible scenario of Greece returning to the drachma if it defaults.
But official denials that this was in the works, and Greece's insistence that it could tackle its revenue shortfall within four months, helped set a floor for the euro.
“Our goal is quite clear: We want to stabilise the eurozone as a whole,” Chancellor Angela Merkel's spokesman Steffen Seibert told reporters.
“The market is focusing on Europe, reacting nervously to credit spreads in the region rather than US economic data,” said Dai Sato, a dealer at Mizuho Corporate Bank.
Sato said the euro would stay under pressure unless the sovereign debt problem shows signs of calming down, with the stance of Germany crucial to addressing it.
“The euro short covering on the news that Italy and China are talking about Italian bond purchases could fade,” a senior FX dealer at a major Japanese securities house told Dow Jones.
“With all the eurozone concerns, there aren't any reasons to aggressively buy the euro,” the dealer said.
The dollar was firmer against other major Asian currencies, gaining to Sg$1.2336 from 1.2322 on Monday, to 1,095.40 South Korean won from 1,094.90 and to Tw$29.45 from 29.39.
The unit also rose to 8,623.75 Indonesian rupiah from 8,608.75, to 42.80 Philippine pesos from 42.69 and to 30.14 Thai baht from 30.12. - Sapa-AFP